Districts Look to Staff Cuts, Reserves to Balance Budgets (PA)

June 28, 2010

For months, Abington Heights School District Superintendent Michael Mahon, Ph.D., has been occupied with a calculator and pages of financial projections.

School board members resisted a tax hike for 2010-11, but balancing the budget any other way proved nearly impossible. Eventually, school district officials presented a budget of $44.1 million that includes a 2-mill tax increase and a $1.4 million deficit. The budget also eliminates four teaching positions and puts off replacing some textbooks and upgrading computer equipment. The school board will vote on the final budget Wednesday.

Abington Heights is not alone when it comes to school budget woes. School districts collectively lost $343 million in local revenues as a result of the recession, according to a survey done this spring by the Pennsylvania Association of School Business Officials and the Pennsylvania Association of School Administrators. Two-thi rds of the state’s school districts are planning to eliminate teaching staff in 2010-11, and 69 percent of the districts will be dipping into reserve funds to balance the 2010-2011 budgets, the survey also found.

A number of Northeast Pennsylvania school districts are planning to use money from reserves to stay in the black. The Hazleton Area School District could use $1.6 million of its roughly $6.5 million reserve fund to balance its budget for next fiscal year. Its school board will meet beginning at 7 a.m. today to work toward a budget agreement.

Tamaqua Area School District is pulling $1.5 million from its $3.76 million reserve and raising taxes by 1.25 mills just to balance its 2010-11 budget.

Using reserve funds is extremely risky, warned Jay Himes, executive director of the PASBO, as there are concerns about soaring pension contributions and cuts to state and federal funding in the next two years.

"What we’re going to see over the next few years is less revenue and more costs," Himes said. "It adds up to a very ugly picture."

Balancing the budget

Mirroring another statewide trend, many local school districts are opting to use reserve funds in addition to enacting modest tax hikes, or foregoing tax hikes at all next year.

Himes thinks relying on reserves instead of raising taxes is risky, since there is a very real possibility of state funding cuts over the next few years. Since state law limits how much school districts can raise property taxes without a referendum, Himes and local school district officials worry that money taken from reserves will not be easily replaced.

"When the reserves are gone, they’re gone," Mahon said. "It’s not a long-term solution to balancing our budget."

At Valley View, business manager Corey Castellani said district officials projected a $1.5 million deficit in the 2010-11 budget but opted to use reserve funds instead of raising taxes.

"We try to waste as little as possible," Castellani said. "The deficit we’ve projected is an estimate and we’re hoping that through careful spending, we could lower that projection."

Several Northeast Pennsylvania districts also are opting to cut staff and programming to save money. Perhaps the deepest cuts have come from Mountain View School District in Susquehanna County, where the $17.3 million budget includes a $270,000 deficit after they cut seven positions and eliminated the wrestling team, drivers education program, their GED program and their after-school shuttle bus service. Before the cuts were made, the district was facing a $1 million deficit, despite the 1.2-mill tax increase.

"I’m fairly comfortable with the budget that passed," Superintendent Andrew Chichura, Ed.D., said, adding that deciding what cuts to make was extremely difficult.

Mountain View joins the 66 percent of school districts throughout the state that will cut teaching positions next year, according to the survey done by PASBO and PASA. Delaware Valley School District has no plans to replace 13 staffers retiring this year and have cut an unfilled administration position from the 2010-11 budget.

Under one proposal at Hazleton Area, only eight of 21 retiring teachers will be replaced, resulting in a savings of $617,683. In-house support staffers would assume the rest of the work , according to district officials.

Funding cuts possible

Not every school district in the region is raising taxes and dipping into reserves, however.

Weatherly Area, for example, approved a budget for next fiscal year with tax rates steady and no boost from its reserve.

Carbondale Area is expecting to receive $700,000 in state funding that they will use to help offset increases to salaries, health care costs and pension contributions.

Its $21.7 million budget calls for no tax increase, no use of reserve funds and no staffing cuts. Because of the number of low-income households in the district, state funding has been "fairly stable," Business Manager David Cerra said.

"We don’t know if we’ll get $700,000, but that’s the estimate we’re getting from the state," he said. "If there’s a fight in Harrisburg or the budget talks drag on, we might have to use reserves temporarily."

But Himes and other officials say they are preparing for the possibility of deep funding cuts made by state legislators, in part because of federal funding will slow to a trickle by the end of the year.

Last year, the state cut more than $350 million in education funding and relied on federal stimulus money to make up much of the difference. Himes said federal stimulus money will not be available after 2011, creating "a 12-percent hole" in the state’s educational funding for 2011-12.

"We’re hopeful that the General Assembly will fund education at the amount recommended by the governor," he said. "But we’re already behi nd because of last year’s cuts and we don’t know yet what will happen with next year’s funding."

Most school districts have adopted a wait-and-see attitude regarding state funding. Delaware Valley Business Administrator William Hessling said its $70.7 million school budget relies on a projected 10.2 percent increase in state funding. If that funding is cut, the district will likely have to withdraw money from reserves to balance the budget.

In addition, school districts will have to address a projected spike in their contributions to the school employees pension fund. By 2012-13, school districts could contribute 30 percent of their total employee salaries to the pension fund. The rate could then remain at 20 percent for the next 20 years.

The state reimburses school districts for about half of their pension contributions, so the state funding also would have to be increased.

Some superintendents, like Mahon, have begun warning school board members about the financial burden the rising contributions will put on the school districts. He anticipates a 20-mill increase for Abington Heights taxpayers over the next five years to address growing pension costs unless the state intervenes in some way.

Cerra said Carbondale Area is also already talking about how to weather the skyrocketing pension costs.

"It could bankrupt every school district," he said. "The next two to three years will really define how school districts do business."